That’s scary.

These bonuses are NOT squeaky clean….the performances they are tied to are not always that clear.

From Megan McCardle

“Barney Frank, however, uses the bonuses to make an important point: the compensation structure at all of these firms is seriously screwed up. Bonuses originally intended to encourage performance have morphed into deferred guaranteed compensation, for reasons that aren’t clear. That’s not necessarily a huge issue–except now, when the time-shifting leads to moral outrage. But the really pernicious problem is that the contracts are set up so that bonuses cannot be substantially cut if profits fall.

It’s not clear to me how contracts have come to be written that way–after all, they weren’t always handing out taxpayer money, and the big bosses who wrote those contracts were also sizeable shareholders in their firms. The result, however, is that all of the employees holding these sorts of contracts have vastly excessive incentives for risk taking. Perhaps some of them were taking big risks on the moral hazard of having Congress bail them out–but as Lehman shows, that was never a slam dunk. And I doubt a handful of these traders and money managers thought they were betting the firm. Most of them thought they were gambling on their own careers–just not very much of a gamble.”

2 points, however:

1. These are bonuses that AIG is contractually obligated to….not arbitrary CEO bonuses that are being paid. Most companies that pay bonuses offer a lower salary than the competitive wage and pay bonuses to tie employees to performance. (So a person accepts 30k when she could earn 100k elsewhere and if she meets some criteria, she gets 70k.)

Congress knew about these and only when the public got a whiff of it did it become an issue. In fact, Chris Dodd wrote in a clause in the stimulus bill for AIG guaranteeing that these types of bonuses could be paid.

2. If they didn’t want AIG to pay these bonuses, then they shouldn’t give them billions of taxpayer dollars.

A radical view on bonus – http://simplilife.wordpress.com/2009/03/17/pound-of-flesh/